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VA Essay Rules > Business Organizations > Flashcards

Business Organizations Flashcards

Covers Corporations and Partnerships

1
Q

Explain how corporations general partnerships, limited partnerships, and LLCs are governed.

A

[i] Corporation: Is governed by a Board of Directors and Officers

[ii] General Partnership: Is governed by its general partners

[iii] Limited Partnership: Is governed by its general partners

[iv] Limited Liability Company: Is governed by its members unless the articles of organization or an
operating agreement provides in writing for management by a manager or managers

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2
Q

How do corporations, general partnerships, limited partnerships, and LLCs shield their members from liability for the debts of the organization, if at all?

A

[i] Corporation: The owners [stockholders] are protected against liability for the corporation’s
debts.

[ii] General Partnership: The general partners are liable for the partnership debts.

[iii] Limited Partnership: The general partners are liable for the partnership’s debts; the limited
partners are liable for the partnership’s debts only up to the amount of their capital contributions,
so long as the limited partners do not become involved in the day to day operation of the
partnership’s business.

[iv] Limited Liability Company: Members are not liable for the debts of the limited liability company.

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3
Q

How are corporations, general partnerships, limited partnerships, and LLCs taxed?

A

[i] Corporation: If the corporation is a C corporation, then the corporation pays tax on income when
earned and the shareholders also pay tax on dividends when paid. The income is taxed at two
levels. If the corporation is an S corporation, then the corporation pays no tax itself. The owners,
though pay tax directly on income as earned. The income is passed through to the owners.

[ii] General Partnership: The partnership is not taxed; net income, for tax purposes is passed onto
and taxed to the partners.

[iii] Limited Partnership: The partnership is not taxed; net income, for tax purposes is passed onto
and taxed to the partners.

[iv] Limited Liability Company: The limited liability company is not taxed; net income, for tax purposes
is passed onto and taxed to the partners.

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4
Q

A shareholder retains her right to vote if she pledges stock for collateral unless…

A

…she signs an agreement to the contrary.

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5
Q

A shareholders has the right to inspect and copy corporate documents, so long as the shareholder sends a […] request at least […] business days in advance and has a […] for doing so.

A

[signed, written]
[10]
[proper purpose]

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6
Q

A proper purpose is defined as one that…

A

…relates to the shareholder’s interest in the company.

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7
Q

The shareholder may only inspect and copy the records at the…

A

…corporation’s main office during business hours.

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8
Q

For some corporate records (e.g., minutes of the board of directors’ meetings, corporate accounting records, and the list of shareholders of record), the shareholder must have been a shareholder for at least […] or must be the record owner or beneficial owner of at least […] percent of the outstanding shares.

A

[six months]

[five]

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9
Q

Shareholders must be given written notice of an annual or special meeting no less than […] and no more than […] before the meeting date.

A

[10 days]

[60 days]

A shareholder may waive notice either in writing or by attending the meeting.

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10
Q

A shareholder may attend a meeting to object to the lack of notice or defective notice if the objection is made…

A

…at the beginning of the meeting.

In such a case, the shareholder’s attendance at the meeting will not be a waiver of the improper notice.

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11
Q

Shareholders of a Virginia corporation, including professional corporations, are typically not liable for its debts but can make agreements to change its management and their relationships, even if…

A

…these agreements conflict with statutory provisions.

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12
Q

A shareholder management agreement must be set forth or referenced in either:

A

(i) the articles or the corporate bylaws and approved by all persons who are shareholders at the time of the agreement, OR

(ii) a written agreement that is signed by all persons who are shareholders at the time of the agreement and that is made known to the corporation.

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13
Q

A partnership is an association of two or more persons to carry on…

A

…a for-profit business as co-owners.

The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of the profits from the business; if so, such an arrangement is generally presumed to be a partnership and the persons who share in the profits are partners.

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14
Q

A partnership is liable for a partner’s tortious acts, including fraud, committed in the […] or with […], whether actual or apparent.

A

[ordinary course of the partnership business]

[partnership authority]

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15
Q

Each general partner is […] for all partnership obligations.

A

[jointly and severally liable]

However, even though a partner is personally liable for a partnership obligation, a partnership creditor generally must exhaust the partnership’s assets before going after the partners’ personal assets.

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16
Q

The employees of a professional corporation [are/are not] shielded from liability arising out of their own malpractice.

However, they [are/are not] shielded against vicarious liability for malpractice committed by other professionals in the professional corporation.

A

[are not]

[are]

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17
Q

After a corporation has issued stock, a voluntary dissolution can occur when…

A

…the board of directors adopts a proposal for dissolution and two-thirds of the outstanding shares approves, or when all shareholders consent to the dissolution, even without approval of the board.

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18
Q

A shareholder can seek the involuntary dissolution of a corporation if the acts of the board of directors or those in control of the corporation are…

A

… illegal, oppressive, or fraudulent.

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19
Q

Upon termination, the property of the corporation passes automatically to its directors as […].

The directors discharge the liabilities and obligations, and then distribute the remainder of the corporation’s assets among…

A

[trustees in liquidation]

…its shareholders according to their respective rights and interests.

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20
Q
A
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21
Q

While a member of a […] corporation is generally not entitled to a distribution, the law governing a nonstock corporation generally […] that of a stock corporation.

A

[nonstock]

[parallels]

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22
Q

Unless the articles of incorporation provide otherwise, a […] of the members of a nonstock corporation must vote in favor of the removal of a director.

A

[majority of the members]

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23
Q

Articles, bylaws, or resolution can authorize Corporation to indemnify a Director and reimburse/advance expenses for liability incurred if Director acted in […], and Director had no reasonable cause to believe […].

A

[good faith believing his conduct was in the best interest of Corporation]

[conduct was unlawful]

When the authorization simply obligates the corporation to provide indemnification to the fullest extent permitted by law, the authorization is deemed to also require the corporation to advance or reimburse reasonable expenses of any kind.

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24
Q

A corporation cannot indemnify a director against liability for:

A

(i) willful misconduct OR
(ii) a knowing violation of criminal law.

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25
Q

A director owes duties of […] and […] to the corporation.

A

[care]

[loyalty]

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26
Q

A director is not liable for breaching the duty of care if…

A

…the director’s conduct was undertaken in good faith with the best interests of the corporation in mind.

This is known as the business judgement rule.

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27
Q

Direcotr can rely on information and opinions of Organization’s, employees, attorneys, accountants or other experts, or committees if Director reasonably believes them to be […].

A

[reliable or competent]

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28
Q

The duty of loyalty requires that a director acts in a way that the director reasonably believes…

A

…is in the best interests of the corporation.

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29
Q

A director can breach the duty of loyalty by:

A

(1) Engaging in a conflict-of-interest transaction
(2) Usurping a corporate opportunity
(3) Competing with the corporation
(4) Committing corporate waste

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30
Q

A distribution when a company is […] is against Virginia Law

A

[insolvent]

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31
Q

Upon dissolution of a corporation, […] is responsible for […], which includes paying known obligations that the corporation had incurred.

A

[the board of directors]
[winding up the corporation’s affairs]

32
Q

A director who votes for or assents to an unlawful distribution in violation of the director’s duties of care or loyalty is personally liable to…

A

…the corporation and its creditors for the amount of the distribution in excess of the lawful amount.

However, a director will not be personally liable for breach of duty if the director complies with the proper procedures for disposing of creditor claims.

33
Q

A director may incur liability for illegal or improper action taken by the board at a meeting when the director is present, even though the director does not vote in favor of the action. In order to forestall such liability, the director must…

A

…object to the holding of the meeting or vote against the action or explicitly abstain from voting

34
Q

Any creditor who did not receive notice of dissolution may bring an action against a […] of the dissolved corporation.

The creditor is entitled to the shareholder’s […] or the […], whichever is less.

A

[shareholder]

[pro rata share] or [the amount received in liquidation]

However, the shareholder’s total liability cannot exceed the amount of assets distributed to the shareholder.

35
Q

For an unlawful distribution, a director is entitled to […] from other liable directors or […] from the shareholders’ pro rata portion of the unlawful distribution when the shareholder accepts the unlawful distribution.

A

[contribution]

[recoupment]

36
Q

Under the “Piercing the Veil” doctrine, a corporation’s existence will be ignored, and the shareholders will be held…

A

…personally liable.

This doctrine is typically applied when the shareholders have controlled or used the corporation to avoid a personal obligation, to commit fraud, crime, or injustice, or to gain an unfair advantage.

37
Q

As an agent of the corporation, a corporate officer or director [does/does not] incur liability to third parties for the performance of duties to the corporation.

A

[does not]

HOWEVER, an officer or director can be liable to a third party when the officer has acted in his personal capacity (e.g., guaranteed a corporate loan) or has engaged in purposeful tortious behavior (e.g., fraud).

38
Q

Piercing the corporate veil is justified when…

A

…the unity of interest and ownership is such that it is hard to differentiate the separate identities of the corporation and the individual, and to adhere to that separateness would work an injustice.

39
Q

A quorum must be present at a board of directors’ meeting in order for the acts conducted at the meeting to be valid. The default is for quorum is […]; however, the articles and bylaws may determine the number of directors required for a quorum, but it cannot be less than […] of the board. If a quorum is present when a vote is taken, then the assent of a […] of the directors present at that time is typically necessary for the board to approve an action.

A

[a majority]

[one-third]

[majority]

40
Q

A director who engages in a conflict-of-interest transaction violates the duty of loyalty and makes the transaction voidable, unless:

A

(1) the material facts were known and disclosed to the board, and the transaction approved by disinterested directors OR
(2) the transaction was fair to the corporation.

Virginia’s test of fairness to the corporation is whether the transaction would have been approved by a disinterested board of directors at the time the transaction was entered into.

41
Q

Unless the articles of incorporation provide otherwise, the sale or other transfer of a corporation’s assets in the usual and regular course of business [does/does not] require approval by the shareholders of the transferor corporation. However, transfers of all or substantially all of a corporation’s assets that resemble a merger may require approval by…

A

[does not]

…both the board of directors and the shareholders of the transferor corporation.

42
Q

A corporation is considered insolvent if…

A

…payment of the distribution prohibits the corporation from paying its debts as they become due in the usual course of business, or if the liabilities of the corporation exceed its assets.

43
Q

In lieu of dissolution, the corporation or one or more shareholders may elect to …

If the parties are unable to agree on a fair price for the shares or other purchase terms after […] days of filing the election, the court, upon the petition of any party, may …

A

… purchase all shares owned by the petitioning shareholder at the fair value of the shares.

[60]

…determine the fair market value of the shares and set the terms on which the shares are to be purchased.

44
Q

How can you remove a director?

A

A director may be removed by the shareholders only at a meeting called for the purpose of removing the director.

The meeting notice must state that the purpose, or one of the purposes of the meeting, is removal of the director.

The shareholders may remove a director with or without cause by a vote of the holders of a majority of the voting power entitled to vote for the director, unless the corporation’s articles of incorporation provide otherwise.

45
Q

A shareholde may pursue a court order for the involuntary dissolution of a corporation if:

A

(i) the shareholders are deadlocked;
(ii) the directors are deadlocked in the management of the corporation’s affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered;
(iii) the acts of the directors are oppressive, illegal, or fraudulent; OR
(iv) the corporate assets are being wasted.

46
Q

An agreement to create a partnership is necessary, but the agreement may be…

A

…implied by the conduct of the parties even when they have not entered into a written or oral agreement.

47
Q

Absent an agreement otherwise, each partner is entitled to/liable for an […] share of the partnership’s profits and losses.

When the agreement only addresses the division of partnership profits, a partner is liable for losses […] to their share of the profits.

A

[equal]

[in proportion]

48
Q

A partner is an […] of the partnership that can bind the partnership in contracts with […].

A

[agent]

[third parties]

49
Q

Formation of a limited partnership requires filing a certificate of […] with the […].

A

[limited partnership]

[State Corporation Commission]

50
Q

Any partner has the power to dissociate from the partnership at any time, even if the dissociation is […]. A partnership at will is dissolved when a partner chooses to dissociate from the partnership by giving […].

A

[wrongful]

[notice of her withdrawal]

A partnership at will is an open-ended partnership that does not have a fixed termination based on a period of time or particular undertaking.

51
Q

However, dissolution [does/does not] automatically terminate a partnership.

A

[does not]

Termination of a partnership is a two-step process—dissolution and winding up.

52
Q

The partnership is not terminated until the partnership business is wound up, which is a process that entails…

A

…liquidating the assets, paying off creditors, and distributing any remaining funds to the partners

53
Q

After dissolution, the partnership is bound by a partner’s act that is appropriate for dissolution as well as any act undertaken by a partner that would have bound the partnership before dissolution, if the other party…

A

…does not have notice of the dissolution.

54
Q

A partner owes the partnership the duty of […] and the duty of […]

A

[loyalty]

[care]

55
Q

Under the duty of loyalty, a partner is required to refrain from the following activities:

A

(i) competing with the partnership business;
(ii) advancing an interest adverse to the partnership; OR
(iii) usurping a partnership opportunity, or otherwise using partnership property or business to derive a personal benefit without notifying the partnership.

56
Q

Under the duty of care, a partner is required to refrain from engaging in…

A

…grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

A partnership agreement may not reduce this duty unreasonably.

57
Q

A partner [is/is not] entitled to remuneration for services performed for the partnership…

A

[is not]

…though an exception exists when the partner renders services in winding up the business of the partnership.

58
Q

A […] of the partners must approve a decision as to a matter in the ordinary course of the partnership’s business, such as a distribution of partnership profits.

A

[majority]

59
Q

A decision as to a matter outside the ordinary course of the partnership’s business, such as an amendment to the partnership agreement, requires the consent of […] partners.

A

[all]

60
Q

What are the rules regarding the assignment of a limited partnership interest?

A

In general, a partnership interest in a limited partnership is personal property that can be assigned in whole or in part.

Upon assignment, the partner ceases to be a partner in the limited partnership and the assignee generally has rights only to receive the distribution to which the assignor partner would otherwise be entitled.

An assignee of a limited partnership interest, including a general partnership interest, may become a limited partner if the partnership agreement permits it or if all partners agree.

61
Q

A judgment against the partnership [is/is not] a judgment against a partner.

A

[is not]

To reach a partner’s personal assets, there must be a judgment against the partner personally.

62
Q

A partnership is not presumed when the profits are shared to pay:

A

(i) a debt,
(ii) interest or other loan charges,
(iii) rent,
(iv) wages or other compensation to an employee or independent contractor,
(v) goodwill payments stemming from the sale of the business, OR
(vi) an annuity or other retirement or health benefit.

63
Q

A partner has a right to access all […] for inspection or to copy.

A partner has a right to seek an […] as to the partnership business at any time.

A

[partnership records]

[accounting]

64
Q

Express authority can arise from…

Implied authority is based on a partner’s…

A partner’s act that was not authorized by the partnership may nevertheless bind the partnership under the principle of […].

A

…the partnership agreement itself, an authorization of the partners, or a statement of authority filed with the state.

…reasonable belief that an action is necessary to carry out his express authority.

[apparent authority].

65
Q

For apparent authority to apply, the partner’s unauthorized act must be performed in the […].

The third party with whom the partner was dealing [can/cannot] hold the partnership liable when that party knew or had received notification that the partner lacked authority.

A

[ordinary course of business]

[cannot]

66
Q

A partnership may be liable for an obligation that was entered into without […] or […] authority if the partnership ratified the obligation.

A

[actual] or [apparent]

67
Q

Is a limited partner usually liable for the obligations of the partnership?

A

No.

A limited partner is generally not personally liable for the obligations of a limited partnership unless the limited partner also serves as a general partner or participates in control of the business.

Even if a limited partner participates in the control of the business, he is personally liable only to persons who transact business with the limited partnership, reasonably believing, based on the limited partner’s conduct, that the limited partner is a general partner.

Solely being an agent of the limited partnership or a general partner does not constitute participation in the control of the business.

68
Q

A limited partner has the right to bring a […] action on behalf of the limited partnership.

A

[derivative]

If the action is successful, the limited partner may receive an award for his reasonable expenses, including attorney’s fees. The limited partnership is entitled to the remainder of the judgment proceeds.

69
Q

A partner may only use and possess partnership property for […].

A partner who derives a personal benefit from the use or possession of partnership property must…

A

[partnership business]

…compensate the partnership for such benefit.

70
Q

A dissociated partner is generally not liable for a partnership obligation incurred after dissociation but may be if…

A

…the partnership does not dissolve and wind up.

71
Q

A partnership at will can be dissolved by a partner choosing…

A

…to dissociate by giving notice of withdrawal.

72
Q

For the withdrawal of a general partner to a limited partnership to be effective, the limited partnership must…

A

…file an amendment to the certificate of limited partnership within 30 days after the withdrawal.

73
Q

A limited partner’s liability for partnership debts is limited to…

A

…the amount of her capital contribution to the partnership.

74
Q

Except as provided in the partnership agreement, a partner is obligated to the limited partnership with respect to any […].

If a partner is obligated to pay a contribution to the limited partnership, a creditor may […].

A

[written, enforceable promise of a future contribution]

[enforce that obligation]

An assignee becomes liable for obligations of the assignor to make and return contributions known to the assignee at the time he became a limited partner, but the assignor is not released from those obligations or obligations arising from false statements in the certificate of limited partnership.

75
Q
A

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